them a $1 million consultant fee. When did you first discuss the fee with respect to Carter, Berlind Co. ? Mr. KLEIN. I believe I testified it was somewhere between June 11 and 17 or June 20. Mr. HARKINS. Why did you make the statement on June 12, 1968, "We have presently acquired 400,000 shares of common stock..."? (The document referred to appears at p. 296.) Mr. KLEIN. Why did I make the statement, sir? Mr. HARKINS. Yes. Mr. KLEIN. The New York Stock Exchange, due to unusual activity in shares of National General and due to rumors on the floor that National General was a heavy buyer in the securities of Great American Holding Co., called up and told us, requested, that we make a statement. They asked me first; Mr. Baker of the New York Stock Exchange called and asked me: "Has National General been buying shares of Great American?" and I answered truthfully and said, “Yes; we have been," that "We would like you to make a public statement as to the amount of shares you bought and the amount of shares you owned." I resisted, or tried to resist. I said: "Well, you know, we have not made that determination and why should we make the statement?" He said: "Because of rumors on the floor of the exchange and because of the unusual activity they suspended trading of the shares of National General, and I think it was on Tuesday, the 11th, if my memory is correct, sir, and they would keep them suspended until and unless I made the statement." I said: "Yes, sir, we will make the statement." So we made the statement. Mr. HARKINS. At the time you made that statement, did you have the contract with Carter, Berlind for $1 million? Mr. KLEIN. We never had a contract. Mr. HARKINS. Did you have an agreement with them? Mr. KLEIN. I don't know. I don't know if it was before or after. Those dates are very, very close. I really truthfully don't know. Mr. FOGT. What possibly could Carter, Berlind have offered you to make it worthwhile to pay them $1 million at that time? Mr. KLEIN. Well, if indeed we proceeded, and it was an "if" deal, if we proceeded and it was successful, we would have given them $1 million, if and when we succeeded. They brought it to our attention, and since this transaction was going to be in excess of $450 million, a fee of $1 million under those circumstances certainly is not unreasonable, it is certainly a fair and equitable fee. Mr. FOGT. Did you have a finder's fee? Mr. KLEIN. I think it is a finder's fee and a consultant's fee. Mr. FOGT. Now, in their consultations, did they indicate that in their judgment because of their control of large blocks of Great American you couldn't take over the company without their approval? Mr. KLEIN. No, sir. Mr. FOGT. They didn't? Mr. KLEIN. No, sir. Mr. FOGT. Did they-I again ask, did they say they had friendly blocks that could be used to your advantage if you did business with them? Mr. KLEIN. No, sir. The only thing they said relative to that was they knew where stock was. Mr. FOGT. They did not say it was friendly to Cogan, Berlind? Mr. FOGT. Thank you. Mr. HARKINS. Mr. Klein, on June 25, the executive committee of National General held a meeting at which they decided to make a tender offer for Great American, is that right? Mr. KLEIN. I am not sure of the meeting, but if those are the minutes, I am sure the date is correct. Mr. HARKINS. I will read from the minutes of the meeting: For each share of stock of Great American Holding Corporation this Corporation would offer (a) a subordinated convertible sinking fund (to begin in 1978) debenture in the principal amount of $45 with interest at the annual rate of 4% payable semiannually, due 1993, convertible at $63 (for one share of the common stock $1 par value of National), callable after July 1, 1971 commencing at a premium rate of 105% of the face value and decreasing at the rate of % per year; and (b) four tenths (.4) of (1) share of the common stock of National. That was the original offer authorized to be made. . . Mr. KLEIN. I believe so. Mr. HARKINS. Which was a $45 debenture and four-tenths of one warrant? Mr. KLEIN. Yes, sir. No, stocks, sir, four-tenths of common stock, I believe, not warrants. Mr. KLEIN. Not the warrants. Originally, the offering was four-tenths share of stock. Mr. HARKINS. On June 26, you issued a press release to that effect? Mr. KLEIN. Yes, sir. Mr. HARKINS. What transpired between June 26 and July 15 in connection with this tender offer with respect to your relationship with Cogan, Berlind? Mr. KLEIN. What transpired? Mr. HARKINS. Did you have discussions of the possibility of an AMK merger with Great American during this period? Mr. KLEIN. I don't know when the AMK offer was announced, sir. Do you have that date? Mr. HARKINS. I have it some place, but it is not in my mind right now. Mr. KLEIN. I don't, either, sir. Mr. HARKINS. Would you have a recollection of a discussion with Carter, Berlind regarding the AMK possibility with respect to Great American, before the public announcement? Mr. KLEIN. I think, I believe a few days before the AMK announcement, very shortly before, maybe a day or two, as I recall, Mr. Lipton came into my office and said somebody on Wall Street called him and said that AMK might come out with a competing offer, at which point I tried to find out if there was any substance to that rumor. There had been rumors of perhaps 10 companies coming out with competing offers and I tried to track down the rumor. I tried to track down the rumor, as I tried to track down all of the other rumors, and I am sure I must have called Carter, Berlind in the course of trying to track the rumor down to ask if they heard anything about a possible AMK competing offer. Mr. HARKINS. On the date of July 18, there was public announcement of Great American taking into consideration a proposal by AMK. Mr. KLEIN. I am not sure of the date, but there was announcement to that effect, yes. Mr. HARKINS. On July 15, Great American advised its shareholders against acceptance of the terms of your offer and your executive committee minutes of the same date indicate that National's tender offer was raised to a $50 principal amount of a new 4-percent convertible subordinated sinking fund debenture and a new 10-year warrant to purchase one share. So it then became a $50 debenture and a one share warrant-you will see this on the second page of the minutes? Mr. KLEIN. Correct. Mr. HARKINS. You issued a press release with respect to the revised offer on July 16? Mr. KLEIN. Yes. Mr. HARKINS. And this was before Great American and AMK announced their negotiations? Mr. KLEIN. Perhaps. OK. All right. Mr. HARKINS. However, on July 18 the chairman of Great American announced that the company was giving favorable consideration to a proposal from AMK, is that right? Mr. KLEIN. I don't know the dates, sir, but if that is the date of the release, yes it was shortly thereafter, a couple of days. Mr. HARKINS. And their proposal was for a $30 debenture, a 10-year warrant to purchase one share, and one-half share of AMK common stock? Mr. KLEIN. I believe that is correct. Mr. HARKINS. I offer these documents for the record, Mr. Chairman. The CHAIRMAN. The documents will be accepted for the record. (The documents referred to appear at pp. 296-299.) Mr. HARKINS. At that point you were a stockholder of Great American? Mr. KLEIN. Correct. Mr. HARKINS. And you rejected the AMK offer. I believe you issued a press release as a stockholder of Great American wherein you advised the other stockholders to resist that offer? Mr. KLEIN. I would like to read from the press release. We state and quote: If the AMK proposal is presented to the stockholders of Great American, as substantial holders of GAH shares, we intend to vote against it, and will urge our fellow shareholders also to reject it. Mr. HARKINS. You also say: We are in the process now of preparing the necessary filings for our own offer to the stockholders of GAH. (The document referred to appears at p. 299.) Mr. KLEIN. Correct. The CHAIRMAN. In that press release you are rejecting your own offer? Mr. KLEIN. No, sir. The CHAIRMAN. You are rejecting your competitor's offer, if I may put it that way. Mr. HARKINS. This was done so that you could make a better offer at this stage, is that right? Mr. KLEIN. No. Mr. HARKINS. Did you discuss with Carter, Berlind what you could do in light of the offer by AMK? Mr. KLEIN. Perhaps. Mr. HARKINS. You solicited at this time other shareholders? Mr. KLEIN. I solicited? Mr. HARKINS. Solicited other shareholders of Great American stock for proxies? Mr. KLEIN. No, sir. Mr. HARKINS. You did subsequently? Mr. KLEIN. I thought you meant at that time. Mr. HARKINS. You subsequently did? Mr. KLEIN. Yes. Mr. HARKINS. But at that time you did not solicit shareholders for support? Mr. KLEIN. Correct, sir. Mr. HARKINS. On September 2, 1968, National General entered into a contract with Carter, Berlind to pay $1 million in consultant fees. I hand you this document. This had been provided to the committee by National General? Mr. KLEIN. Yes, sir. Mr. HARKINS. Is this a copy of the contract that was entered into? Mr. KLEIN. Yes, sir. Mr. HARKINS. Was this contract executed? Mr. KLEIN. I don't remember. I don't know, sir. Mr. HARKINS. Did the parties ever sign this document, Mr. Lipton? Mr. LIPTON. I have looked for an executed copy in the files, but I must confess I have not been able to find one. I don't know. I couldn't tell you whether or not it was ever actually executed. Mr. HARKINS. The contract says in part: It is understood you have, since June 1, 1968, rendered services to us by way of consultation in connection with the fire and casualty insurance industry in general, and Great American Holding Corporation in particular, and in consideration for our obligations hereunder you agree to continue to render similar service to us through May 31, 1969. Is this your present recollection of your agreement? (The document referred to appears on p. 300.) Mr. LIPTON. Yes. Mr. HARKINS. Before June 1, 1968, had you had any agreement with Carter, Berlind? Mr. LIPTON. No; it was made subsequent to June 1, somewhere in the middle of June. Mr. HARKINS. What services had Carter, Berlind rendered to you? Mr. LIPTON. They brought Great American to our attention, to begin with, and they brought their supposed and so-called and in fact insurance expert to us to explain to us his evaluation of the insurance industry, where it would fit with National General and they rendered the report we looked at before called the Netter report. Mr. HARKINS. Did Edward Netter at any time make a statement to you that he could obtain Great American stock-excuse me. Did he at any time tell you he knew where holdings of Great American were located? Mr. LIPTON. Yes; he did. Mr. HARKINS. And when would he have told you this? Mr. LIPTON. I can't recall. I know he told me he knew where there were substantial blocks of Great American Holding Corp., I think, and this is just to the best of my recollection. I think it was right before we bought the big blocks or at the time we bought the big blocks. It is difficult to recall, I don't know. Mr. HARKINS. In your August 20, 1968, notice to stockholders, starting on page 3, you described an arrangement with Carter, Berlind as follows: In addition, National has agreed to pay Carter, Berlind, & Weill, Inc. $1,000,000 as a consultant's fee if National accepts pursuant to this Exchange Offer sufficient shares of Holding Corporation Common Stock that will, when added to National's present and any other holdings, aggregate a majority of the outstanding shares of Holding Corporation, or acquires the assets of Holding Corporation or otherwise succeeds to its business. The foregoing is the only condition to payment of the consultant's fee. National has purchased approximately 400,000 shares of Holding Corporation Common Stock through Carter, Berlind & Weill, Inc. and paid brokerage commissions therefore aggregating $175,975 in connection with the purchase. (The document referred to appears on p. 301.) Now, you never paid a million dollar fee, did you? Mr. LIPTON. No, sir. Mr. HARKINS. CBW did receive the brokerage fee set forth here? Mr. LIPTON. Yes. Mr. HARKINS. And you did pay Carter, Berlind $250,000 as a finders fee? Mr. LIPTON. Yes, yes. Mr. HARKINS. And this was the contract that was entered into on September 18? Mr. LIPTON. If that is the correct date, yes, sir; the contract was entered into, pursuant to those terms. Mr. HARKINS. This contract was executed? Mr. LIPTON. It was. Mr. HARKINS. I hand this document to you, Mr. Lipton, and if you note the notations on that contract, I ask you as to who made these? Mr. LIPTON. I see notations in three places, sir. There are two insertions of the word "upon" and I don't know who made those notations, but there is a sentence in ink, which I inserted in my handwriting. Mr. HARKINS. And this contract provides for a contingent consultant fee of $1 million or a fee of $250,000 under the following conditions: Upon the Registration Statement pertaining to the above proposed Exchange offer being declared effective by the SEC, if you are not designated therein as a Dealer-Manager, and you are not designated as a Consultant to receive the aforesaid contingent fee, then in such event National agrees to pay to you within one week after said Registration Statement shall become effective the amount 33-762-70-pt. 4- 6 |